Do Suppliers Get a 1099? When to Issue One
Simplify 1099 reporting for payments to your business suppliers. Learn who needs a form, what to exclude, and the steps for compliance.
A Form 1099 is an information return used by the Internal Revenue Service (IRS) to report various types of income not classified as wages, salaries, or tips. It helps the IRS monitor income sources that have not had taxes withheld. For the payer, issuing a 1099 fulfills a reporting obligation, and for the recipient, the information helps accurately report income on their tax return. This system aids in ensuring that taxpayers report all sources of income.
General Requirements for 1099 Reporting
Businesses generally need to issue a Form 1099 to suppliers when payments for services or rents total $600 or more within a calendar year. This threshold applies to the aggregate amount paid to a single vendor. The primary types of payments that trigger this reporting requirement include compensation for services performed by non-employees, such as independent contractors, freelancers, or other self-employed individuals.
The specific form used for reporting payments to suppliers for services is Form 1099-NEC, or Nonemployee Compensation. This form tracks nonemployee compensation, separating it from other miscellaneous income previously reported on Form 1099-MISC. Its purpose is to ensure that income earned by independent contractors is properly reported to the IRS.
Other types of payments to suppliers that typically require 1099 reporting include rent payments made in the course of a trade or business, and fees paid to attorneys for legal services. This requirement primarily applies to payments made by businesses, not individuals making personal payments unrelated to a trade or business.
Payments Not Subject to 1099 Reporting
There are specific scenarios where a Form 1099 is generally not required for payments made to suppliers, even if the $600 threshold is met. A significant exception applies to payments made to corporations, including both C-corporations and S-corporations. These entities typically exempt the payer from issuing a 1099.
An important carve-out to the corporate exemption involves payments for legal services; attorney fees must be reported on a 1099-NEC even if the attorney operates as a corporation. Additionally, payments made for merchandise, inventory, or other physical goods are typically not subject to 1099 reporting.
Payments processed through credit card, debit card, or third-party payment networks, such as PayPal or Stripe, are also generally exempt from 1099 reporting by the payer. This is because the payment processors themselves are responsible for reporting these transactions to the IRS on Form 1099-K. This avoids duplicate reporting. Furthermore, personal payments, which are not related to a trade or business, do not necessitate the issuance of a 1099.
Information Needed from Suppliers
To ensure accurate 1099 reporting, businesses must gather specific information from their suppliers. The primary tool for this is IRS Form W-9, titled “Request for Taxpayer Identification Number and Certification.” This form collects the necessary tax identification details from a vendor before payments are made. Obtaining a completed W-9 helps a business comply with IRS reporting regulations.
The W-9 form requires the supplier to provide their legal name, any business name if different from the legal name, their current address, and their entity type. The entity type clarifies whether the supplier is an individual (sole proprietor), partnership, corporation, or other structure. The W-9 collects the supplier’s Taxpayer Identification Number (TIN), which can be either a Social Security Number (SSN) for individuals or an Employer Identification Number (EIN) for businesses.
Collecting an accurate and complete W-9 from each supplier before initiating payments is a crucial step. This proactive measure helps prevent issues with 1099 reporting at year-end. Without a valid W-9, a business may be subject to backup withholding requirements, where a percentage of payments must be withheld and sent directly to the IRS, or face penalties for incorrect reporting.
Issuing 1099 Forms
Once all necessary information has been gathered, businesses must issue Form 1099-NEC. The deadline for providing Copy B of Form 1099-NEC to the recipient is typically January 31st of the year following the payment year. This allows the recipient sufficient time to prepare their own tax return.
The recipient copy can be delivered either by mail or, with the recipient’s consent, through electronic means. Simultaneously, Copy A of Form 1099-NEC must be filed with the IRS. The due date for filing Copy A with the IRS is also January 31st.
Businesses can file Copy A electronically through the IRS’s FIRE (Filing Information Returns Electronically) system, which is often mandatory for those filing a large number of forms, generally 10 or more. Alternatively, paper filing is available for businesses with fewer forms. Ensuring timely and accurate filing with both the recipient and the IRS is essential for compliance.